S&P Downgrades Brazil Citing Weak Growth

By Johanna Bennett

Brazil got taken to the woodshed by Standard & Poor’s. The credit rating agency late Monday downgraded its rating for the country’s long-term bonds to one notch above junk, citing deteriorating government accounts, rising debt and weakening growth. The rating firm cut Brazil’s sovereign-credit rating to triple-B-minus from triple-B and said its outlook for the country was stable.

The downgrade marks a turnaround from 2008, when Brazil’s bonds were awarded investment-grade status amid the global financial crisis. The South American nation seemed to shrug off much of the global downturn, spurring an investor frenzy for Brazilian securities. Brazil soared to 7.5% growth in 2010. But its economy has slowed sharply since, as the competitiveness of local manufacturers has slipped and government policies designed to restart it failed, souring investor optimism. Standard & Poor’s had warned about the possibility of a downgrade in mid-2013. “Brazil had already been losing credibility,” said Nathan Blanche, a partner at the Tendências consulting firm in São Paulo. “This cut is a confirmation of the loss of credibility by the country, principally in fiscal issues.

Moody’s Investors Service and Fitch Ratings both have investment-grade ratings on Brazil with stable outlooks.

Officials in Brazil lost no time in rebuffing the downgrade. The Finance Ministry argued that Brazil’s 2.3% growth last year was higher than most of the G-20 countries. Brazil’s central bank, meanwhile, said the country is responding to the challenges it faces with a new austere economic policy and a flexible exchange rate.